The ending of ATLA is kind of a mess anyway, even if you want to say that lion turtles out of nowhere don't count as an ass-pull because the idea got fleshed out five years later.
I mean, season 3 of ATLA is all about shades of gray. A whole bunch of episodes are about the way war compromises people who started out as unambiguously good ("The Puppetmaster" and "The Southern Raiders" are particularly notable). Obviously it also spends a lot of time trying to show that there are real humans in the Fire Nation besides just Zuko and Iroh, and that even Sozin didn't start out so bad. From the very start of the season, this is all clearly leading up to Aang having to choose between his duty as Avatar and what he feels is right.
The lion turtle is intended to be a way for the show to totally punt on this. Aang has a dilemma. It's the central dilemma of the season and perhaps of the series. And then the lion turtle short-circuits it by offering him what's presented as an as-good-as-killing solution to the Ozai problem with none of the guilt, without any of the characters even having to do any work to get there.
Worse, Aang should feel guilty - what he did was monstrous, by his own lights. Killing Ozai might have been more merciful. It's obvious even in ATLA that, for many benders, bending is an important part of who they are. Any of the characters we get to know would be devastated if they got spirit-bent. Toph is obviously a bit of a special case, but her losing her bending would be clearly worse than anyone else losing their eyes. The Legend of Korra makes this dynamic pretty clear - in season 1, people who lose their bending are basically dead men walking. Several people seem like suicide risks. So the lion turtle fails to actually punt on Aang's dilemma - it's worse than that, because Aang ends up choosing the Kyoshi approach without intending to choose.
Finally, season 3 of ATLA makes clear on a few occasions that imprisoning powerful benders is thought to be perfectly feasible. Nobody is particularly concerned about the prospect of keeping Hama or Iroh in prison, although obviously they both escape once. There's a two-parter which is all about a major Fire Nation prison. In the finale, Katara captures Azula (without the benefit of the Avatar State, even) and she's presumably locked up somewhere rather than executed or spirit-bent. Meanwhile, Aang successfully renders Ozai harmless, and only then does he spiritually torture his enemy.
Also the kiss is way creepy.